Choosing an Advisory Board for your Tech Company

Advisory Boards have become a very chic addition to software and hardware companies over the last 5 or 10 years. So what are the key criteria you should use in putting together an advisory board? We’ll examine this issue below.

Do you choose your tech firm advisers wisely?

Prior to the 5-10 year period mentioned above, it was rare to hear of a company that had an advisory board. What’s driven this trend? For public companies in particular, it’s mostly because desirable because advisers who formerly would have served as on the Board of Directors may shy away as a result of higher perceived potential liability in that role due to new laws. For private companies I believe it was mostly the recognition that those who are filling private company board seats are in that role primarily because of ownership (VCs, local angels, founders etc.), and may not contribute as a group all key domain or technology expertise important to the company at the board level.

As a result advisory boards are very much in vogue, sometimes to great effect–but often not. I’d use as an analogy to this run on advisory boards the large number of “strategic partnerships” that are often created in the technology industry. In strategic partnering you’ll see everything from deals that greatly benefit both companies to others which start and end with a vague press release – and really benefit no one. Similarly, many companies seem to put together an advisory board just because it’s the trendy “thing to do”. This is usually just a waste of time, of course. Like most anything, if you put little thought and effort into it, very little usually comes back.

Let’s take a look at some criteria that could be useful in putting together your particular group of advisers:

Domain or technology expertise

This may appear obvious, but I see a lot of advisers on boards that are there just because they know someone, or maybe possess specific expertise that just isn’t core to the company’s success. I believe it is very important to use your advisory board to fill holes in your management team’s knowledge, contacts or experience.

Access to capital

This is a common reason that CEO’s will recruit an advisory board member, especially in early stage companies where capital needs are a critical strategic topic. The feeling is that this person is very well connected or can otherwise help in the raising of capital. But I’m not sure that this is always the best use of an advisory board seat, unless raising capital will be almost a constant need. In most cases I prefer to see advisory boards filled with more scarce talents specific to the company’s market and technology.

Access to software or hardware distribution channels

Distribution access is another common motivation in seeking advisory board members. I believe this is a very legitimate goal for your board, especially if the adviser truly has special access, or if distribution channel expertise is a real weakness within the company.

Honest and straightforward management counsel

It’s very important to attract experts who aren’t afraid to challenge the management team’s view of the world as well as “common business sense”. Of course as advisers they need to be tactful in how they convey their viewpoints. But “Yes Man” panels that makes senior management feel good are of no real use and can even be harmful by reinforcing a false sense of reality.

Available advisory board bandwidth

I believe this is a criterion that is very critical and is often overlooked. I often see companies rejoice when they are able to convince a high profile, “heavy hitter” to join their advisory board. It does make for a great press release! But while the name may look great on a company backgrounder or on your website, the reality is often that their time is spread too thin to be of real benefit to you. So prior to adding them to your advisory board, make sure that you have a frank discussion and reach agreement on what level of involvement they can actually have with your company.

Adviser Motivation

This is the most important criterion of all, in my opinion. Probably it is also the one on this list that is used the least in considering potential advisers. It’s easy to get excited about someone who fits perfectly what you need on paper. But you will find many folks that are interested strictly from a self-promotion viewpoint. It’s exposure for them and looks good on their resume. There’s nothing wrong with this, as long as it’s not the sole or primary motivator. Others may think it will give them an advantage in getting you to use their services. Or they may have some more sinister reason for getting close to your company. So make sure that the candidate’s reasons for engaging are above board and that your interests align. I’m not trying to create paranoia in anyone’s mind. Everyone has different interests, but it’s important that there isn’t something that will cause more or a problem that the potential benefits. I believe that the adviser’s motivation is the single greatest indicator of success or failure in this role. Don’t ignore it.

So there’s some basic advice to consider when putting together your software or hardware technology company advisory board. Many of you have done this as well. Post your own advice, successes or horror stories in the comment section below so we can expand this discussion interactively.

About Phil Morettini

Phil Morettini is the author of the Morettini on Management Tech Blog and President of PJM Consulting. Mr. Morettini has an extensive C-level software and hardware company executive background. PJM Consulting provides management consulting and interim management services to technology companies.

Comments

Hello,
It was a good article to have a brief idea of Advisory Board and love the article. Well but i guess if you can give idea of why a advisory should get on board of a company, in return what a company needs to give advisory person, I can say a brief idea of engagement model between a company and an advisor it would be great.

Nischal, thanks for the comments. Unfortunately your questions could form a couple of additional articles. Advisors have numerous reasons for serving with a company: to “give back” to the tech community, gain experience in a particular vertical market, gain broader exposure, get a small amount of equity or other compensation, etc. The most common form of compensation is a stock grant or options, but this also varies a great deal depending upon the owners feelings about giving out stock and how they like to compensate in general.